Your 1099-B and Company Stock

So you got your 1099-B form for your stock trades and you sit down to do your tax return. Looks pretty straight forward, just fill in the blanks and out pops your capital gain or loss. Well there is a complication if you received stock from your company. The 1099-B will not be 100% complete, thereby you will pay more in taxes, often much more than you should pay.

Companies provide compensation in stock through an number of methods, there are the Employee Stock Purchase Plans (ESPP), Restricted Stock Units (RSU), Incentive Stock Options (ISO) and Restricted Stock Awards. All these types have a qualified or non qualified counterpart to them, which determines how they are taxed. In general if you hold the stock long enough it becomes a long term capital gain versus regular income which is taxed at a higher rate.

What is shown on the 1099-B form is the stock’s basis (purchase price) and selling price. Most types of stock options when you receive the stock, some part of it will be included in your W2 income. That part that is included on your W2 now becomes part of your basis in the stock. However your 1099-B will not show the adjusted basis on the section that is reported to the IRS. They may show it elsewhere on the 1099-B or not.

So the trick is to get the basis corrected when you file your tax return or you will overpay your taxes. There are several methods for making this correction, it might be information provided by the brokerage, the company itself or on one of the forms the company sends you each year. Unless you totally understand how to do this it is important to work with a good tax preparer that understands how to do calculation correctly.